European Commission unveils VAT MOSS reforms

Two years of contention over the EU's VAT rules regarding the place of supply of digital services, an e-commerce reform targeting wealthy multinationals which instead devastated online SMEs and microbusinesses, came to an end on Thursday with the announcement of a programme of reforms and changes.

Common-sense thresholds

For campaigners, the key demand has been the establishment of a common-sense threshold before EU VAT rules would become applicable to cross-border sales. Thursday’s announcement confirmed that the European Commission is proposing a threshold of €10,000 in online sales per annum before MOSS rules would apply. Businesses trading under that threshold will be able to apply domestic VAT rules. In support of this proposal, the Commission revealed that just 0.1% of all MOSS revenue has come from returns with a declared turnover of under €10,000.

In addition to the €10k threshold, SMEs which make less than €100,000 in cross-border sales will no longer be required to provide two pieces of data to prove the place of supply of their customers. This requirement had resulted in businesses spending thousands of pounds to reprogram their e-commerce operations in order to collect trivial amounts of European VAT. The EC now says that one piece of evidence will suffice for traders of e-services.

“We are thrilled that the European Commission has adopted this ‘soft landing’ which we're confident will keep small businesses trading," said Clare Josa of the EU VAT Action campaign, the advocacy group whose tireless lobbying was formally cited by the EU in their impact assessment. “Whilst it would have been nicer if the threshold had been higher,” she adds, “we cannot afford to let it go any lower.”

Further reforms

Other changes pertain to the internal administrative burdens created by VATMOSS compliance. Under the reforms, small businesses will be allowed to use domestic VAT rules on invoicing requirements and record keeping. The bizarre requirement to keep all MOSS-related data for ten years will no longer apply.

In addition, the first point of contact for queries will always be the tax administration where the seller is located. Traders will no longer receive random demands from tax authorities in other countries, a complication which rather defeated the whole purpose of the MOSS system.

The returns process has also come in line for reform. In response to feedback that it is difficult for sellers to collect multiple points of international data within strict filing deadlines, the EC has proposed extending the deadline for MOSS returns from 20 to 30 days following the end of the tax period.

The Commission also wants sellers to be allowed to correct previous MOSS returns in a subsequent return, rather than having to file amended returns for previous quarters.

MOSS by the numbers

95% of all reported issues with MOSS came from the UK

2,578 UK traders are MOSS registered

0.1% of all MOSS revenue has come from returns with a declared turnover of under €10k

The average MOSS compliance cost for European businesses is €2,172

Germany and the UK hold 43% of all MOSS registrations across Europe

Luxembourg and Ireland are responsible for 70% of MOSS revenues across Europe

76% of non-union MOSS registrations are made through the UK and Ireland

What’s next?

Once accepted, the proposed thresholds and changes would take effect in 2018. Even so, Josa cautions that the work is not finished. "We need to keep getting MEPs to lobby member states' finance ministers to make sure this legislation passes without changes," she says, noting that it is critical for all issues to be resolved before the system rolls out to physical goods.

For now, says Josa, the proposed reforms are "testimony to what a group of businesses can do when they work for positive change. This simply would not have happened if there had not been thousands of business owners working together."

This is, of course, great news. However for some traders there is also BAD news - this is the proposal that the places of supply rules for B2C transactions will, in the future, also apply to supplies of goods and all services other that telecommunications, broadcasting and e-services. Traders in goods will also use either individual registration by country or the MOSS scheme which will then become an OSS, a One Stop Shop for ALL supplies. At present traders supplying goods B2C use distance selling thresholds of €35,000 or €100,000 depending on the country involved, this will be replaced by the new €10,000 limit which will apply to supplies of both goods and services (I know of several traders who supply both). They also propose to remove the low value import exemption which can be up to €22 per transaction.
Where supplies of other services are made B2C these will cease to be domestic supplies but will again take place where the customer is located.
In addition, when Brexit finally occurs suppliers in the EU will have join a non-Union MOSS (or non-union OSS) as we will, like Norway and Switzerland, no longer be within the EU wide MOSS scheme. Ireland would, because of the language, be the obvious one to join. Other than that then, great news!

The problem with extra-territorial laws (and taxes) is the extent to which they can be enforced ... or the even more fundamental question of whether those businesses outside the territory even know those laws exist.

When the UK leaves the EU, then presumably the EU member states will have no mechanism for enforcing the law in the UK or indeed the rest of the non-EU world. As B2C sales are to a multitude of consumers in a multitude of countries, then the member states will have only the vaguest of ideas of the level of non-compliance.

It would have made much more sense just to raise the threshold to a sensible level of several million Euro to target those serious businesses that generate the most revenue and free the smaller traders from the bureaucracy.